As the gas price in the $400 billion Russia-China deal hasn’t been officially announced, Konstantin Simonov, general director of Russia’s National Energy Security Fund, said it would be about $390 per 1,000 cubic meters.

“In the end, I think, we got a very good price,” Simonov
told RT on the sidelines of last week’s St. Petersburg Economic
Forum.

Simonov thinks that the widely reported sticker price of $350 per
1,000 cubic meters is a simple oversimplification of the minute
details of the $400 billion gas deal under which Gazprom will
supply China with 38 billion cubic meters (bcm) of natural gas
over the next 30 years.

Simply dividing $400 by 38 bcm over the 30-year time period
doesn’t take into account the full scope, Simonov said.

Under the contract, supplies of Russian gas via the Eastern route
will reach the full capacity of 38 bcm a year only after the
fifth year of supplies. During the first five years deliveries
will only be 16 bcm annually, Simonov explained.

This means that the total gas supply will exceed a trillion cubic
meters and the price will come closer to $390.

Mutually beneficial

When negotiations first began in 2004, Gazprom said it wouldn’t
accept a price below the average price for Europe, which now
stands at $375-380.

The Chinese were also able to use the threat of diminishing
European demand as well as Western-led sanctions to their
advantage in the negotiations. But the final price is closer to
the upper end of the expected $350 - $400 range, which is good
for Russia, Simonov said.

“Has China lost? I wouldn’t say so,” Simonov said.

Russia was able to offer China not only gas, but gas in the
region it needs it, the most populous northeastern regions,
Simonov said.

Some activists were suggesting to “build a pipeline from
Turkmenistan, we’ll build a pipe from Burma, we have LNG plants
in the east.”

However, importing gas from Russia may prove to be a better
economic alternative to Central Asia because Russia can deliver
gas to China where it needs it.

“And when gas comes from Turkmenistan to the west of China,
it’s not needed there, because key production facilities are in
the east and it would have been necessary to transport it across
the entire country. And that’s 4,000 kilometers,” Simonov
said.

“In the gas business transportation is very important.” And
“is very expensive.”

For example, LNG transport from Australia, another supplier to
China’s booming energy economy, is price between $600-700 bcm.

Changing perception

The Russia-China megadeal may become a precedent for future deals,
Simonov said.

The Chinese are largely perceived as “crafty people”
who, of course, pursue their own interests, the expert added.
This is part of why the deal was discussed for over 10 years
before signing. But the latest deal showed that when they feel
they can be hurt they can be flexible.

The gas deal between Gazprom and China’s CNPC is the beginning of
Russia’s incursion into the hot and expanding Asian market, as
the two countries plan to cooperate more closely on trade,
investment, and military projects as well.

Russia will supply China with 38 billion cubic meters of gas per
year via the eastern Power of Siberia pipeline, which crosses
Siberia and reaches China's northeast regions. A route that could
deliver gas to China from Russia's west is also in the works.